Pay awards to remain at 3%

Three-quarters of UK private sector workers can expect a pay increase of 3% or above in the coming year, according to the annual Pay Prospects survey by Personnel Today’s sister publication IRS Employment Review.

While the level of settlements predicted for the next bargaining round in 2005-06 ranges from 2% to 17%, the majority (59%) of awards are expected to fall between 3% and 3.99%, leaving the median pay deal pitched at 3%.

Many employers are playing it safe, however, as more than six in 10 (61%) of the bargaining groups covered by the survey are likely to receive the same percentage award in 2005-06 as they did in the 2004-05 pay round.

IRS reveals that for other private sector workers the news is mixed, with one-fifth predicted to benefit from a higher pay rise next year but the same proportion tipped for a lower increase.

Nine in 10 employee groups will see their next pay increase set against company performance and, therefore, how much it can afford. In addition, three-quarters (76.5%) of pay deals will be linked to inflation, with the all-items retail prices index the clear inflation measure favourite

More than half (54.5%) of employee groups will have their pay rises set against pay levels in other organisations in the same industry, while 46.2% will consider recruitment and retention factors

Overall, employers expect the level of pay awards to be capped by their inability to raise prices, and company performance, but will face upward pressure on pay settlements from inflation and recruitment and retention difficulties.

IRS pay and benefits editor, Sheila Attwood said: “This time last year we predicted that, while 3% would remain the benchmark pay settlement, employers would face upward pressure on the level of pay awards made.

“For the next bargaining round, we again expect 3% to remain as the benchmark increase, but in contrast, falling inflation and continued economic uncertainty will exert a downward pull on the level of pay awards. As a result, there is a possibility that pay awards may dip below the 3% mark at some point over the next year.”